This study focuses on understanding the effect earnings management has on audit fees. Earnings management is
studied by examining real earnings manipulation through sales manipulation and overproduction.
The study is done using an OLS regression analysis. The sample consists of companies in the manufacturing
industry, chosen using two-digit SIC codes, data collected from the COMPUSTAT and AUDIT ANALYTICS
databases. Observations are from US based firms, total of 9541 firm-year observations during the period of 2008 to
2014.
The results suggest that earnings management through sales manipulation and overproduction are inversely
associated with the audit fee, suggesting that higher quality auditors decrease earnings manipulation practices.